[Federal Register Volume 63, Number 17 (Tuesday, January 27, 1998)]
[Notices]
[Pages 3892-3894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1834]


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FEDERAL COMMUNICATIONS COMMISSION

[CC Docket No. 96-45 and 97-160; DA 97-2623]


Universal Service

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: In this Public Notice, released December 16, 1997, the Common 
Carrier Bureau revises and approves universal service contribution 
factors for the first quarter of 1998. These factors will be used to 
calculate first quarter contributions to universal service.

FOR FURTHER INFORMATION CONTACT: Diane Law, Common Carrier Bureau, 
Accounting and Audits Division, (202) 418-7400, or via E-mail to 
<a href="/cdn-cgi/l/email-protection#bcdcdcd8d0ddcbfcdadfdf92dbd3ca">``<span class="__cf_email__" data-cfemail="b4d0d8d5c3f4d2d7d79ad3dbc2">[email protected]</span></a>.''

SUPPLEMENTARY INFORMATION: In the Universal Service Order released on 
May 8, 1997, the Commission established new federal universal service 
support mechanisms consistent with the Communications Act of 1934, as 
amended.<SUP>1</SUP> The Commission required all telecommunications 
carriers that provide interstate telecommunications services, providers 
of interstate telecommunications, and payphone service providers to 
contribute to the federal universal service support 
mechanisms.<SUP>2</SUP> The Commission found that contributions for the 
schools, libraries, and rural health care support mechanisms would be 
based on interstate, intrastate, and international end-user 
telecommunications revenues.<SUP>3</SUP> The Commission also found that 
contributions for the high cost, rural, and insular and low-income 
support mechanisms would be based on interstate and international end-
user telecommunications revenues.<SUP>4</SUP>
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    \1\ Federal-State Joint Board on Universal Service, Report and 
Order, 12 FCC Rcd 8776 (1997) (Universal Service Order).
    \2\ Universal Service Order, 12 FCC Rcd at 9173-9178, 9183-9185.
    \3\ Universal Service Order, 12 FCC Rcd at 9203, 9205.
    \4\ Universal Service Order, 12 FCC Rcd at 9200, 9202-9203.
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    On July 18, 1997, the Commission released an Order directing the 
National Exchange Carrier Association (NECA) to create an independently 
functioning not-for-profit subsidiary, the Universal Service 
Administrative Company (USAC), through which it will administer 
temporarily certain aspects of the federal universal service support 
mechanisms.<SUP>5</SUP> The Commission also directed NECA to create two 
independent, not-for-profit entities, Schools and Libraries Corporation 
and Rural Health Care Corporation, to administer certain aspects of the 
schools, libraries, and rural health care support 
mechanisms.<SUP>6</SUP> The Commission instructed USAC, Schools and 
Libraries Corporation, and Rural Health Care Corporation to submit 
projections of demand and administrative expenses for their respective 
support mechanisms for the first quarter of 1998 to the Commission at 
least sixty days before the start of the first quarter of 
1998.<SUP>7</SUP> USAC also was required to compile total interstate, 
intrastate, and international end-user telecommunications revenues and 
submit that information to the Commission.<SUP>8</SUP> The Commission 
stated that it would publish these figures and the proposed quarterly 
contribution factors in a Public Notice.<SUP>9</SUP>
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    \5\ Changes to the Board of Directors of the National Exchange 
Carrier Association, Inc., Federal-State Joint Board on Universal 
Service, Report and Order and Second Order on Reconsideration, CC 
Dockets No. 97-21, 96-45, FCC 97-253 (rel. July 18, 1997) (NECA 
Report and Order).
    \6\ NECA Report and Order at para. 57.
    \7\ NECA Report and Order at para. 47.
    \8\ NECA Report and Order at paras. 43-48. See also 47 CFR 
54.709(a)(2), (3), and 54.711(b).
    \9\ NECA Report and Order at para. 48.
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    On November 13, 1997, using the information submitted on October 
31, 1997 by the Universal Service Administrative Company (USAC), 
Schools and Libraries Corporation, and Rural Health Care Corporation 
(collectively, the administrative corporations), the Accounting and 
Audits Division (Division) announced the proposed universal service 
contribution factors for the first quarter of 1998.<SUP>10</SUP> 
Pursuant to the Commission's rules, those contribution factors would 
have been deemed approved on November 28, 1997 if the Commission had 
taken no action regarding the proposed contribution 
factors.<SUP>11</SUP> On November 26, 1997, however, the Division 
extended the review period for the proposed first quarter 1998 
universal service contribution factors until December 5, 
1997.<SUP>12</SUP> On December 5, 1997, the Division further extended 
the period of time during which the Commission could modify the 
proposed universal service contribution factors for the first quarter 
of 1998 until December 12, 1997.<SUP>13</SUP> On December 12, 1997, the 
Division extended the review period for the proposed contribution 
factors until December 16, 1997.<SUP>14</SUP>
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    \10\ Proposed First Quarter Universal Service Contribution 
Factors, Public Notice, DA 97-2392 (rel. Nov. 13, 1997). On November 
19, 1997, AT&T filed comments on the November 13th Public Notice. 
See Letter from Rick D. Bailey, AT&T, to Magalie Roman Salas, FCC, 
dated November 19, 1997.
    \11\ 47 CFR 54.709(a)(3).
    \12\ Extended Review Period for First Quarter Universal Service 
Contribution Factors, Public Notice, DA 97-2510 (rel. Nov. 26, 
1997).
    \13\ Further Extension of Review Period for First Quarter 
Universal Service Contribution Factors, Public Notice, DA 97-2560 
(rel. Dec. 5, 1997).
    \14\ Additional Extension of Review Period for First Quarter 
Universal Service Contribution Factors, Public Notice, DA 97-2600 
(rel. Dec. 12, 1997).
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    On December 16, 1997, the Commission released the Third Order on 
Reconsideration in CC Docket 96-45. In that Order, the Commission 
concluded that it could reduce the maximum amounts collected during the 
first six months of 1998 for the schools and libraries and rural health 
care support mechanisms without jeopardizing the sufficiency of the 
support mechanisms.\15\ Consistent with the Commission's action on 
reconsideration, in this Public Notice, the Bureau revises the 
projections of demand for the low income and rural health care support 
mechanisms and

[[Page 3893]]

approves revised universal service contribution factors for the first 
quarter of 1998.
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    \15\ Federal-State Joint Board on Universal Service, Third Order 
on Reconsideration, CC Docket 96-45, FCC 97-411 (rel. Dec. 16, 
1997).
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    The Commission concluded in the Third Order on Reconsideration in 
CC Docket 96-45 that it should not impose unnecessary financial burdens 
on service provider contributors to universal service by collecting 
funds that exceed demand. Accordingly, the Bureau has reviewed all of 
the administrative corporations' projections and has determined that 
the estimated demand for the low income support mechanism appears to be 
too high. Based on our analysis, we project that annual demand for the 
low income support mechanism should be approximately $500 
million.<SUP>15a</SUP> This annual figure of $500 million yields a 
quarterly demand projection of $125 million, instead of the $136.3 
million projected by USAC. Therefore, we find that the first quarter 
projection of demand for the low income support mechanism should be 
$125 million.
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    \15a\ This $500 million projection of annual demand is based on 
the following: According to the 1997 Monitoring Report, 5.2 million 
customers participated in Lifeline in 1996. Monitoring Report, CC 
Docket No. 87-339, May 1997, pgs. 86-87, table 2.3. Assuming 
participation rates among existing customers remain constant, low 
income support for existing Lifeline participants will be $436 
million for the year. (5.2 million people times $7, which is the 
maximum amount of federal support for Lifeline subscribers in states 
that provide matching funds, multiplied by 12 months). In the 
Universal Service Order, the Commission estimated that, by extending 
the low income support mechanism to non-participating states, 
approximately 1.9 million new low-income consumers would become 
eligible for the support mechanism. Universal Service Order, 12 FCC 
Rcd at 8966, n. 903. Assuming one-third of eligible consumers 
participate in the support mechanism and that non-participating 
states do not provide matching funds, low income support for new 
Lifeline participants will be $40 million for the year. (627,000 
people (.33 x 1.9 million people) x $5.25 (the maximum amount of 
federal support for Lifeline subscribers in states that do not 
provide matching funds) x 12 months). We have assumed a one-third 
participation rate because the participation rate for Washington 
D.C.'s low income program is 32.3 percent. Chesapeake and Potomac 
Tel. Co., Formal Case No. 850, Order No. 9927, page 166 (rel. Jan. 
29, 1992). In the Universal Service Order, the Commission estimated 
that annual funding for LinkUp will increase to $23.6 million. 
Universal Service Order, 12 FCC Rcd at 8966, n. 903. Thus, the 
projection of annual low income demand is approximately $500 
million. ($436 million plus $40 million plus $23.6 million).
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    The Bureau also adjusts the first quarter total program costs for 
the rural health care support mechanism, consistent with the Third 
Order on Reconsideration in CC Docket 96-45, from $100 million to $25 
million.<SUP>16</SUP>
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    \16\  The Rural Health Care Corporation may collect up to $25 
million in the first quarter of 1998. Third Order on Reconsideration 
at para. 4.
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    On November 26, 1997, the Commission released the Second Order on 
Reconsideration in CC Docket No. 96-45, which authorized the 
Administrator to bill contributors and collect contributions on a 
monthly, rather than a quarterly basis.<SUP>17</SUP> That Order will 
reduce the interest income for the first quarter of 1998.<SUP>18</SUP> 
The amount of interest earned for the high cost and low income support 
mechanisms decreased because contributions will be collected on a 
monthly, as opposed to quarterly, basis, while support will continue to 
be distributed on a monthly basis. As a result of the 75-day window 
filing period, initial support for the schools and libraries and rural 
health care support mechanisms will be distributed in the second 
quarter.<SUP>19</SUP> The amount of interest earned for the schools and 
libraries and rural health care support mechanisms decreased slightly. 
Accordingly, we have adjusted the projected amount of interest income.
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    \17\ Changes to the Board of Directors of the National Exchange 
Carrier Association, Inc., Federal-State Joint Board on Universal 
Service, Second Order on Reconsideration in CC Docket 97-21, CC 
Docket Nos. 97-21, 96-45, FCC 97-400 (rel. Nov. 26, 1997).
    \18\ In calculating interest income, USAC, Schools and Libraries 
Corporation, and Rural Health Care Corporation assumed payments for 
the entire quarter would arrive on January 1, 1998. USAC assumed the 
first payments for the high cost and low income support mechanisms 
would be distributed at the end of February. Schools and Libraries 
Corporation and Rural Health Care Corporation assumed that the first 
payments for the schools, libraries, and rural health care support 
mechanisms would be distributed 40 days after January 1, 1998.
    \19\ Schools and Libraries Corporation and Health Care 
Corporation Adopt Length of Filing Windows, Public Notice, DA 97-
2349 (rel. Nov. 6, 1997). See also 47 CFR 69.616, 69.618(a)(7), 
69.619(a)(7) (instructing the Schools and Libraries and Rural Health 
Care Corporations to authorize USAC to submit payments within 20 
days of the receipt of requisite forms and instructing USAC to 
distribute payments within 20 days of receiving authorization). We 
anticipate that the window period for Schools and Libraries 
Corporation and Rural Health Care Corporation will not begin before 
the second week in January 1998, funds will not be distributed until 
after the 75-day window period has closed, and approximately 40 days 
have passed (20 days for submission of payments, 20 days to 
distribute payments, pursuant to 47 CFR 69.616, 69.618(a)(7), 
69.619(a)(7)). Thus, payments for the schools and libraries and 
rural health care support mechanisms will not be distributed until 
May 1998.
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    Therefore, first quarter projections of demand and administrative 
expenses are as follows (revised figures are in bold):\20\
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    \20\ Administrative expenses appear to be high relative to 
projected quarterly demand, because start-up costs have been 
allocated to the first quarter. We anticipate that administrative 
expenses will total less than two percent of annual program costs.

                                                                                                                
                                            [In millions of dollars]                                            
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                                                                                                        Total   
                         Program                             Program    Administrative    Interest     program  
                                                              demand       expenses        income       costs   
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Schools and Libraries....................................        299.3            2.7         (2.0)        300.0
Rural Health Care........................................         23.0        \20\2.2         (0.2)         25.0
                                                          ------------------------------------------------------
    Subtotal.............................................        322.3            4.9         (2.2)        325.0
High Cost................................................        434.0            1.1         (1.0)        434.1
Low Income...............................................        125.0            0.6         (0.3)        125.3
                                                          ------------------------------------------------------
    Subtotal.............................................        559.0            1.7         (1.3)        559.4
                                                          ======================================================
    Total................................................        881.3            6.6         (3.5)        884.4
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[[Page 3894]]

    Based on information contained in the Universal Service Worksheets, 
FCC Form 457, USAC submitted the following information regarding end-
user telecommunications revenues on November 13, 1997:
    Total Interstate, Intrastate, and International End-User 
Telecommunications Revenues from January 1, 1997-June 30, 1997: $89.827 
billion.
    Total Interstate and International End-User Telecommunications 
Revenues from January 1, 1997-June 30, 1997: $35.001 billion.\21\
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    \21\ Letter from William Stern, NECA to Secretary, FCC, dated 
November 13, 1997.
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    USAC recommended that, in calculating the contribution bases, the 
Commission adjust end-user telecommunications revenues downward to 
account for possible uncollectible contributions and possible errors in 
the projections of demand and administrative expense. The proposed 
contribution factors set forth in the November 13, 1997 Public Notice 
thus were based on USAC's recommended contribution bases.\22\ The 
revised contribution factors set forth below, however, are based on 
contribution bases that include no adjustments for uncollectibles or 
errors in projection. Based on the low level of carrier-to-carrier 
uncollectibles for access charges,\23\ we have concluded that projected 
levels of uncollectible contributions should be minimal. Furthermore, 
given the quarterly evaluation of demand, we find that we do not need 
to take into account possible errors in projections when setting the 
contribution factors. Any projection-related errors can be corrected in 
subsequent quarters.\24\
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    \22\ Letter from John A. Ricker, NECA to Universal Service 
Branch, dated November 10, 1997.
    \23\ The Commission estimates that carrier-to-carrier 
uncollectible rates are 0.2 percent. This estimate was calculated 
using 1996 ARMIS data. (1996 ARMIS 4301, Traffic Sensitive Total 
Uncollectibles (Column R, Row 1060) divided by Traffic Sensitive 
Total Revenues (Column R, Row 1090)).
    \24\ See also Letter from Rick D. Bailey, AT&T, to Magalie Roman 
Salas, FCC, dated November 19, 1997 at page 4.
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    Finally, we note that the contribution factors proposed by USAC and 
set forth in the Public Notice were derived by dividing quarterly total 
program costs by revenues for a six-month period. Although these 
factors, if approved, would have been used to collect funds for the 
first quarter, they would have been applied to the six-month revenues 
reported on individual contributor's Universal Service Worksheets. To 
obtain contribution factors that will be applied to revenues that 
approximate first quarter revenues, the revised contribution factors 
set forth below are based on contribution bases that are divided by 
two. This results in a more accurate portrayal of the contribution 
factors but does not change the amounts collected.
    Based on the figures submitted by USAC, Schools and Libraries 
Corporation, and Rural Health Care Corporation, and revised as set 
forth above, the approved contribution factors for the first quarter of 
1998 are as follows:
    Contribution factor for the schools and libraries and rural health 
care support mechanisms:
    Total Program Costs / Contribution Base (Interstate, International, 
and Intrastate) = $0.325 billion / ($89.827 billion / 2) = 0.0072.
    Contribution factor for the high cost and low income support 
mechanisms:
    Total Program Costs / Contribution Base (Interstate and 
International) = $0.559 billion / ($35.001 billion / 2) = 0.0319.
    These factors are the approved first quarter 1998 universal service 
contribution factors. To calculate contributions, USAC shall multiply 
these factors by one half of contributors' end-user telecommunications 
revenues for January 1, 1997 through June 30, 1997, as reported on 
Universal Service Worksheets. USAC will bill and collect those 
contributions on a monthly basis.
    For further information, contact Diane Law, Universal Service 
Branch, Accounting and Audits Division, Common Carrier Bureau, at (202) 
418-7382.

Federal Communications Commission.
Timothy A. Peterson,
Deputy Division Chief, Common Carrier Bureau.
[FR Doc. 98-1834 Filed 1-26-98; 8:45 am]
BILLING CODE 6712-01-P


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